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I recently saw several interesting forecasts about the cable industry. The research firm SNL Kagan predicts that broadband-only homes in the US – those that don’t subscribe to traditional linear cable TV – will increase from 23.3 million in 2018 to 40.8 million by 2023. In another forecast Parks Associates predicts that the number of worldwide OTT subscribers – households that subscribe to at least one online video service – will grow to 310 million by 2024.

These kinds of forecasts have always intrigued me. I doubt that there is anybody in the industry that doesn’t think that cord cutting won’t keep growing or that the market for services like Netflix won’t keep growing. What I find most interesting about these total-market forecasts is the specificity of the predictions, such as when Kagan predicts the 40.8 million number of broadband-only homes. I suspect if we did deeper into what Kagan says that they have probably predicted a range of possible future outcomes and were not that specific. But I also understand that sometimes putting a number on things is the best way to make a point in a press release.

What I’ve always found interesting about future predictions is how hard it is to predict where a whole industry is going. If I look back ten years I could find a dozen experts predicting the death of traditional landline telephones, and yet not one of them would have believed that by 2019 that landline penetration rates would still be around 40%. I imagine every one of them would have bet against that possibility. It’s easy to understand the trajectory of an industry, but it’s another thing to predict specifically where an industry will land in the future. It wasn’t hard ten years ago to predict the trajectory of the landline business, but it was nearly impossible to know how many landlines would still be around after ten years.

That doesn’t mean that somebody doesn’t have to try to make these predictions. There are huge dollars riding on the future of every telecom industry segment. Companies that invest in these industries want outside opinions on the direction of an industry. If I was developing a new OTT product like Apple is doing, I’d want some feel for the potential of my new investment. I’d want to gather as many different predictions about the future of the OTT market as possible. The above two predictions were announced publicly, but corporations regularly pay for private market assessments that never see the light of day.

To show how hard it is to make such predictions, I want to look a little more closely at the Kagan prediction. They are predicting that in five years there will be 17.5 million more homes that buy broadband and don’t buy a traditional TV product. There a number of factors and trends that would feed into that number:

It looks like first-time households of millennials and generation Z don’t subscribe to cable TV at nearly the same levels as their parents. Some portion of the increase in broadband-only homes will come from these new households.

While final numbers are still not in for 2018 it appears that there will be around 2 million homes that cut the cord last year and dropped cable TV. Is the future pace of cord cutting going to be faster, slow or stay the same? Obviously, predicting the future of cord cutting is a huge piece of the prediction.

It’s becoming a lot more complicated for a household to replace traditional cable. It looks like every major owner of content wants to put their unique content into a separate OTT service like CBS All Access did with the Star Trek franchise. The cost of subscribing to multiple OTT services is already getting expensive and is likely to get even costlier over time. Surveys have shown that households cut the cord to save money, so how will cord cutting be impacted if there are no savings from cutting the cord?

The big cable companies are creating new video products aimed at keeping subscribers. For instance, Comcast is bundling in Netflix and other OTT products and is also rolling out smaller and cheaper bundles of traditional programming. They are also allowing customers to view the content on any device, so buying a small bundle from Comcast doesn’t feel much different to the consumer than buying Sling TV. What impact will these countermeasures from the cable companies have on cord cutting?

I’m sure there are other factors that go into predicting the number of future homes without traditional cable TV and these few popped into my mind. I know that companies like Kagan and Parks have detailed current statistics on the industry that are not available to most of us. But statistics only take you so far, and anybody looking out past the end of 2019 is entering crystal ball territory. Five years is forever in a market that is as dynamic as cable TV and OTT content.

We aso know from past experience that there will be big changes in these industries that will change the paridigm. For example, the content owners might all decide that there is no profit in the OTT market and could kill their own OTT products and cause an OTT market contraction. Or a new entrant like Apple might become a major new competitor for Netflix and the demand for OTT services might explode even faster than expected. I don’t know how any prediction can anticipate big market events that might disrupt the whole industry.

Understand that I am not busting on these two predictions – I don’t know enough to have the slightest idea if these predictions are good are bad. These companies are paid to make their best guess and I’m glad that there are firms that do that. For example, Cisco has been making predictions annually for many years about the trajectory of broadband usage and that information is a valuable piece of the puzzle for a network engineer designing a new network. However, predicting how all of the different trends that affect video subscriptions over five years sounds like an unsolvable puzzle. Maybe if I’m still writing this blog five years from now I can check to see how these predictions fared. One thing I know is that I’m not ready to take any five-year forecast of the cable industry to the bank.

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DirecTV launched their most recent satellite in May of 2015. The company has launched 16 satellites in its history, and with twelve remaining in service is the largest commercial satellite company in the world. AT&T, the owner of DirecTV announced at the end of last year that there would be no more future satellite launches. Satellites don’t last forever, and that announcement marks the beginning of the death of DirecTV. The satellites launched before 2000 are now defunct and the satellites launch after that will start going dark over time.

AT&T is instead going to concentrate of terrestrial cable service delivered over the web. They are now pushing customers to subscribe to DirecTV Now or WatchTV rather than the satellite service. We’ve already seen evidence of this shift and DirecTV was down to 19.6 million customers, having lost a net of 883,000 customers for the first three quarters of 2018. The other satellite company, Dish Networks lost 744,000 customers in the same 9-month period.

DirecTV is still the second largest cable provider, now 2.5 million customers smaller than Comcast, but 3 million customers larger than Charter. It can lose a few million customers per year and still remain as a major cable provider for a long time.

In much of rural America, the two satellite companies are the only TV option for millions of customers. Households without good broadband don’t have the option of going online. I was at a meeting with rural folks last week who were describing their painful attempts to stream even a single SD-quality stream over Netflix.

For many years the satellite providers competed on price and were able to keep prices low since they didn’t have to maintain a landline network and the associated technician fleet. However, both satellite providers looked to have abandoned that philosophy. DirecTV just announced rate increase that range from $3 to $8 per month for various packages. They also raised the price for regional sports networks by $1. Dish just announced rate increases that average $6 per month for its packages. These are the two largest rate increases in the history of these companies and will shrink the difference between satellite and terrestrial cable prices.

These rate increases will make it easier for rural cable providers to compete. Many of them have tried to keep rates within a reasonable range of the satellite providers, and these rate increases will shrink the differences in rates.

In the long run the consequences of not having the satellite option will create even more change in a fast-changing industry. For years the satellite companies have been the biggest competitor of the big cable companies – and they don’t just serve in rural America. I recently did a survey in a community of 20,000 where almost half of the households use satellite TV. As the satellite companies drop subscribers, some of them will revert to traditional cable providers. The recent price increases ought to accelerate that shift.

Nobody has a crystal ball for the cable industry. Just a year ago it seemed like industry-wide consensus that we were going to see a rapid acceleration of cord cutting. While cord cutting gets a lot of headlines, it hasn’t yet grown to nearly the same magnitude of change that we saw with households dropping telephone landlines. Surprisingly, even after nearly a decade of landline losses there are still around 40% of homes with a landline. Will we see the same thing with traditional cable TV, or will the providers push customers online?

Recently I’ve seen a spate of articles talking about how it’s becoming as expensive to buy online programming as it is to stick with cable companies, and if this becomes the public perception, we might see a slowdown in the pace of cord cutting. It’s possible that traditional cable will be around for a long time. The satellite cable companies lost money for many years, mostly due to low prices. It’s possible that after a few more big rate increases that these companies might become profitable and reconsider their future.

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I recently read an article that warned that the big ISPS need to embrace artificial intelligence, software defined networks and cloud infrastructure if they don’t want to become a ‘dumb pipe’ provider. It reminded me that the small ISP industry heard this same warning a decade ago. Small telcos and cable companies were all warned by numerous industry experts that they were fated to just become dumb pipes.

After a couple of years the dumb pipe phrase passed out of our conversations, but the issues that led to that warning were all still in play. Even a decade ago we knew that services other than broadband had a dim long-term future.

A decade ago we saw landline penetrations dip below 90% from a high of around 98%. There were dire warnings everywhere that voice would soon be dead and that voice margins would evaporate. Since then we’ve seen a steady market decline of about 5% of total market share annually, but that means that even after a decade that landlines still have a nationwide penetration rate of about 40%. The decline hasn’t been spread evenly and I have clients with voice penetration rates ranging between 20% and 55%.

We also knew a decade ago that cable TV was going to be in trouble. Netflix had just gone online with pay-per-view movies in 2007, but nobody understood then how powerful online video would become. The real concern then was that small video providers were already seeing annual programming rate increases that neared double-digits and everybody feared that the public would not tolerate large annual rate increases forever. For most small providers this was the first time they had ever had to annually raise rates for a product and nobody was comfortable. But the lure of programming is strong, and even after a decade of rate increases that have easily doubled cable TV prices the national penetration rate is around 68% for traditional cable TV – not drastically below the 75% penetration of a decade ago. It turns out that the public still likes the programming more than they hate the rate increases.

The real fear of becoming a dumb pipe a decade ago was that small ISPs would have to survive on nothing but broadband revenues. A decade ago small ISPs had broadband penetration rates in the 40% to 50% range and when they did the math they didn’t foresee that as enough revenue to replace the shrinking landline and video revenues. Many small telcos were so sure about the downfall of the small ISP industry that of them sold their businesses, fearing they’d never see a higher valuation.

However, since then we’ve seen broadband penetration rates continue to grow and roughly 84% of homes nationwide now pay for a broadband connection. Rising broadband penetration rates settled the fears of many small ISPs who are still in business.

Interestingly, many small ISPs have not raised broadband rates since a decade ago. It’s been hard to justify raising rates when the big ISPs also didn’t raise rates. Urban broadband that was overpriced a decade ago looks like more of a bargain after a decade of steady rates.

The good news for small ISPs is that the big ISPs are now poised to significantly raise broadband rates. In November we just saw Charter raise the broadband price for bundled customers by $5 per month – an increase that is unprecedented in the industry. Wall street analysts are telling the big cable companies that the market can bear broadband rates as high as $90, and they seem to be listening. As the big ISPs raise broadband rates, small ISPs will be able to ride the coattails and edge rates higher – knowing that for them that rate increases will go straight to the bottom line.

I don’t see any small ISPs who are worried about becoming the dumb pipe – because most of them are already there. If they still offer cable TV, they do so for customer convenience because the product has no margin. Small ISPs continue to lose landline customers, but they now understand that they can survive on broadband and related products like managed WiFi.

The main issue facing small ISPs these days is economy of scale. It’s clear that when broadband represents most of the margin of an ISP that profits come by controlling costs. The best way to control costs is not by tightening the belt, but by gaining customers to better spread existing costs. I see many small ISPs doing the math and aggressively pursuing new broadband customers. Far from fearing being a dumb pope provider, I see small ISPs enthusiastically embracing that role and growing their customers and their margins.

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The results of a new survey were recently released by Telaria and Adobe Advertising Cloud that looked in detail at both cord cutters and those who still use traditional cable TV packages. The survey asked questions to groups of cord-cutters, those with traditional TV and also consumers who only watch video on demand and don’t pay for a service. A summary of the survey can be found at this link.

42% said the primary reason for keeping traditional cable TV is to watch live programming such as sports or local news.

55% said that the options for cord-cutting are confusing.

34% said they liked having a lot of channels available.

21% said they didn’t know where to look for alternative options to traditional cable TV.

55% with traditional cable TV are still satisfied with the value they get for the price they pay.

48% said they have considered cancelling traditional cable TV.

30% said they would cut the cord if they were sure they could watch all of their favorite content

Cord-cutters were asked why they had left traditional TV:

73% said it was due to the high cost of cable TV. 74% of cord-cutters say they are now happy with what they are paying for content.

30% described themselves as low users of watching content and left because they didn’t use traditional TV very much.

36% said they were still able to get the content they want.

There were some other interesting responses in the survey:

16% of respondents say they have used somebody else’s password to watch streaming content.

27% of homes now use a digital antenna to watch over-the-air TV, with sports being the primary reason for using the antenna.

These results are further validated by a survey released earlier this year by Deloitte who surveyed 2,088 households asking why they are keeping traditional cable TV:

The primary reason for keeping TV, cited by 71% of households is the ability to watch live broadcasts – be that sports, local news or events like the Emmys or Oscars.

Another primary reason is that households perceive that they are saving money due to a bundle. 56% of respondents said the bundle made them feel like they are getting a good deal.

The third reason cited for keeping traditional cable is that households said they’ve had the service for a long time and don’t want to change.

However, Deloitte found concern about price with 70% of respondents said they are paying too much for their cable subscriptions.

As somebody who cut the cord a number of years ago I echo some of the concerns voiced in these surveys. It can be confusing understanding the differences between the online programming options. I applaud anybody who can decipher the differences between packages offered by Sling TV, DirecTV Now and Playstation Vue. I’ve not yet found an online service that is easy to surf if you don’t have specific programming in mind. The proliferation of platforms with unique programming such as CBS All Access, Disney and others will likely make it even harder to find or afford all of the content you might want to watch. We are definitely not yet to a point where cord-cutting is as easy as keeping the traditional cable package.

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The research firm eMarketer is predicting that cord cutting is accelerating this year at a pace faster than predicted by the industry. They’ve done surveys and studies and conclude that 187 million people will watch Pay TV this year (satellite or cable TV), a drop of 3.8% in viewership.

The drop in 2017 was 3.4%, but the big cable companies like Comcast and Charter hoped they could slow cord cutting this year by offering Netflix and other alternative programmers on their platforms. Perhaps that is working to a degree since cable companies are losing customers at a slower pace than satellite cable or the big telcos delivering cable on DSL, like AT&T.

eMarketer looks at the statistics in a different way than most others and predicts the people who will watch the various services – which is different than counting households. I suppose that some members of a household could stop watching traditional Pay TV while the home continues to pay for a subscription. They are predicting that the total number of people who will stop watching Pay TV will rise to 33 million by the end of 2018, up from 25 million just a year ago.

As you would expect, if Pay TV viewers are dropping, then viewers of online services ought to be increasing. They are predicting the number of viewers of the major OTT services as follows for 2018: YouTube – 192 M; Netflix – 147.5 M; Amazon – 88.7 M; Hulu – 55 M; HBO Now – 17.1 M and Sling TV – 6.8 M. eMarketer says that in 2018 that 52% of homes now watch both Pay TV and an online service.

We know that Netflix’s growth has slowed and they added only 670,000 net customers in the US in the second quarter of this year and only 4.5 million worldwide. It appears, however, that the other online services are all growing at a faster pace as people are diversifying to watch more than just Netflix.

eMarketer credits a lot of the exodus of Pay TV subscribers to the proliferation of original content available. In 2010 there were 216 original TV series produced. That was 113 from the broadcast networks, 74 from cable-only networks, 25 from premium movie channels and 4 from online providers like Netflix. In 2017 that number has grown to an astonishing 487 original series. That’s 153 from the broadcast networks, 175 from cable-only networks, 42 from premium movie channels and 117 from online providers. A large percentage of the 487 series are now available online to somebody willing to track them down. These figures also ignore the proliferation of other content available online such as movies, documentaries, comedy specials, etc.

The proliferation of content from multiple sources is making it harder to rely on just one source of content these days. Somebody with a basic cable subscription is missing out on the 159 series produced by the premium movie channels and the online providers. Somebody cutting the cord and only using Netflix would be missing out on even more content. Some of the content generated by the broadcast and cable networks is available for free online, with commercials from places like Hulu. If a cord cutter wants to have access to a lot of the available content they’ll have to subscribe to multiple services – perhaps Netflix plus something like Hulu or Sling TV.

The eMarketer survey didn’t ask about the affordability of traditional cable – a factor that is at the top of the list in other surveys that have studied cord cutting. This particular survey concentrated on what people are watching without delving into the issues that drive somebody to cut the cord.

I don’t know about my readers, but I’m a cord cutter and I’ve already reached the point of content saturation. I probably have fifty items on my Netflix watchlist, and it would take more than a year to watch it all, even if I never add anything new. I have a similar list on Amazon Prime and a smaller list on Hulu. I never sit down to watch content without more options than I know what to do with. I have the luxury these days of watching content that fits my mood and available time – a real luxury compared to even a decade ago.

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I just saw an eye-opening statistic. Deloitte’s latest Digital Media Trends Survey reports that 56% of current pay-TV subscribers are keeping TV because they feel trapped by the bundle. Deloitte concludes that there is huge pent-up demand for cord cutting.

This number is not entirely surprising to me because in the last few years I’ve seen new fiber networks get a much smaller percentage of cable customers than would be expected by the subscribership on the incumbents. New fiber providers do surveys showing incumbent cable TV rates between 65% to 75%, and yet they far lower percentages of new customers buying cable TV on their new fiber network.

I always interpreted this to mean that the new fiber competitor attract customers who want faster broadband. I’ve assumed that these were natural cord cutters. But if the Deloitte statistic is to be believed, a large percentage of new customers on fiber networks are using the opportunity of changing providers as a chance to drop the traditional cable that they no longer want.

We know that there is a financial penalty for breaking a bundle, which must be a strong incentive for people to stay with their current provider. The amount of this penalty differs by customer and often has to do with how willing a customer is to fight to keep a cheap price while dropping cable. I’ve always thought the penalty for dropping cable is between $10 and $20 per month.

But sometimes the bundle is more and is forced. I moved and left Comcast less than two years ago. They would not let me buy faster broadband speeds without subscribing to basic cable TV. I tried every year to try to drop the cable – something that I never used and for which I stashed the settop box in the closet. But I was told each year that dropping the cable meant dropping back to a slower broadband speed. In my case I would have saved at least $40 per month from dropping basic cable, but I felt blackmailed into keeping it to keep an acceptable broadband speed.

This statistic has a lot of industry implications. First, builders of new networks can’t count on a big cable penetration. Obviously the Deloitte 56% finding is going to vary from market to market – but it’s such a large number that in almost any market a new network is going to get far lower cable penetration rates than what the incumbent has today. We know nationwide that the overall cable penetration rate last year was 69%, which is now probably closer to 67%. New networks are going to see significantly lower cable penetration rates – if Deloitte is right, perhaps in the mid-30% range.

If this statistic holds true everywhere it is probably one of the main reasons why customer dislike of cable companies is growing. Cable companies have been among the lowest rated companies in terms of customer satisfaction – and in recent years their already low ratings are continuing to drop. Many consumers must feel the way that I felt about Comcast – that they are being ripped-off and held captive by the bundled pricing. The same bundle that they liked when it first saved money is being used against them if they want to drop cable TV.

This statistic also makes new technologies and new ISPs more attractive. People will likely flock to 5G if the speeds are decent and they aren’t forced to take cable TV. This might also be one of the reasons that many are choosing cellular broadband – to get away from over-expensive cable TV.

Finally, this means that the cable companies are sitting on an albatross of a product. There are many millions of homes paying for a product that they no longer want. Last year there were still more homes that dropped telephone landlines than cut the cable cord. But if the Deloitte statistic holds true, it might not take much for many homes to make the cord cutting decision and cord cutting could quickly change to a deluge. The industry-wide implications of that are huge – it would quickly cripple programmers. It would put a huge dent in the retransmission fees that are currently fueling the profits of the major over-the-air networks. A huge drop in traditional cable customers would quickly be felt in the sports world – which is largely financed with TV revenues. It means a drastic drop in the incentive to advertise on TV – the other major revenue that fuels the industry.

I believe that the cable companies have been counting on cord cutting to increase slowly over time, similar to the way that the landline telephone business has slowly ebbed away. But if there is this much pent-up demand to drop cable, it’s not inconceivable that the number of cable customers could drop explosively if there is a consensus that it’s worth it to break the bundle. The whole cable industry is not ready for an explosive drop in customers and it would get ugly quickly.

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It’s been general wisdom for several years that high cable TV prices are one of the predominant factors behind cord cutting. TiVo’s recently released Q4 2017 Online Video and Pay-TV Trends Report says that prices are even more important than we thought. TiVo talked to a number of cord cutters in 2017 and found that 86.7% of those who dropped TV in 2017 list high prices as the number one reason for abandoning traditional cable TV. This is up from 80.1% a year earlier.

It’s not hard to understand why price is becoming such a big factor. Over 50% of households now say that their monthly cable bill is more than $75 per month. And only 15% pay less than $50, down from 18% a year earlier. Annual rate increases that are far greater than the cost of general inflation are pushing cable prices out of the affordability zone for many households.

Interestingly we see this same trend manifesting in another way. In a recent survey Parks Associates report that a little over 20% of households now use digital antennas in their homes to receive over-the-air networks like ABC, CBS, NBC, FOX and PBS. That’s up from 15% in 2015. That’s a huge swing and means that over 6 million homes have started using antennas in just the last two years.

Nationwide more than 3 million households (2.4% of all households) dropped cable in 2017 – as witnessed by the subscribers of the largest cable TV companies. Just about every one of my clients will tell you that they lost a larger percentage than the average. The nationwide numbers are bolstered by the fact that Comcast lost only 0.7% of its cable customers and Charter lost 1.4%. But telcos did far worse with AT&T losing 14.6% and Frontier losing 16.1%.

Higher prices are almost entirely due to increased programming costs. Small companies have seen programming costs grow over 10% per year, and the rate of annual growth is increasing. Some have reported annual increases to me as high as 15% in the most recent two years.

One of the biggest drivers of high programming costs are the retransmission charges that local affiliates of the major networks charge to cable companies to cover the over-the-air networks. In large cities a lot of the local TV stations are owned directly by the major networks like NBC or ABC, but in smaller markets these are generally owned by others. The independent local stations have no recourse but to raise retransmission rates each year since the networks increase the costs to them for remaining as an affiliate. In the end, all of the extra revenues from retransmission fees flows up to the major networks, which now see this as a major source of revenue growth.

It’s not just the major networks that are increasing rates. Practically every cable network is increasing rates at a faster pace than a decade ago. It’s a really odd economic phenomenon to see big price increases occurring in an industry that is losing customers at this pace. Any economics 101 book would suggest that the laws of supply and demand would drive prices for programming in the other direction.

But the cable industry is perverse due to regulations. The cable rules require stations to carry local networks that are within their range. I know a number of cable companies who would gladly provide rabbit ears to customers rather than continue to raise rates every year – but they are required by laws passed by Congress to carry these stations. The same laws also force cable companies to carry large lineups in the basic and expanded basic tiers that we are all familiar with.

These laws mean that cable providers have few options on what networks to carry. I don’t know any cable providers who wouldn’t like to try something different and perhaps offer smaller packages of the most-watched networks that people could afford to buy. But the legal requirements for cable lineups embolden the programmers to charge exorbitantly because cable operators have no power to push back. The most a cable provider can do is to take all of the networks from a given programmer off the air – and even this is impractical since each of the few major programmers own a lot of networks.

You can’t really fault the programmers since they are all publicly-traded companies which are responding to Wall Street demands that they increase profits quarter after quarter. The whole cable ecosystem is polluted by the need to increase profits. It’s sad, because without the price increases each year all of the companies involved could continue to make high margins and big profits.

Even with all of this turmoil in the industry I don’t hear of any discussion in Congress about tackling the issue and relaxing the current rules that are breaking the industry. Instead we see people fleeing traditional cable TV and buying smaller packages of the same programming online from Sling TV, DirecTV Now and Playstation Vue.

The rate of cord cutting is clearly accelerating and it’s not going to take many more years until these issues can’t be fixed – because by then the majority of households will be getting programming online rather than from cable companies.

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It was just a year ago where there were numerous industry articles asking if cord cutting was real. There were many who thought that cord cutting would fizzle out and would not be a big deal for the cable industry. But the numbers are not from Leichtman Research Group for the end of 2017 and it shows that cord cutting is now quite real. The following numbers compare the fourth quarters of 2017 and 2016.

4Q 2017

4Q 2016

Change

Comcast

22,357,000

22,508,000

(151,000)

-0.7%

DirecTV

20,458,000

21,012,000

(554,000)

-2.6%

Charter

16,997,000

17,236,000

(239,000)

-1.4%

Dish

11,030,000

12,025,000

(995,000)

-8.3%

AT&T

3,657,000

4,281,000

(624,000)

-14.6%

Cox

4,200,000

4,290,000

(90,000)

-2.1%

Verizon

4,619,000

4,694,000

(75,000)

-1.6%

Altice

3,405,500

3,534,500

(129,000)

-3.6%

Frontier

961,000

1,145,000

(184,000)

-16.1%

Mediacom

821,000

835,000

(14,000)

-1.7%

Cable ONE

283,001

320,246

(37,245)

-11.6%

Total

88,788,501

91,880,746

(3,092,245)

-3.4%

These companies represent roughly 95% of the entire cable market, so these numbers tell the story of the whole market. From what I can see from many of my clients, many small cable companies are likely doing even worse than the big companies.

What’s probably the most significant from these numbers to me is that the overall industry cable penetration dropped to 70% by the end of 2017, down from a high of a few years ago of 75%. There were 126.2 million households at the end of 2017, per statistica, and only 70% of them are buying traditional cable – and that number has certainly dropped more into 2018.

The rate of growth of cord cutting is increasing. In 2016 the industry lost just over 1 million customers and in one year that grew to over 3 million.

It’s not hard to see where these customer went. FierceCable reported recently that 5% (over 6 million) of US households subscribe to a vMVPD service – these are online services that carry smaller bundles of traditional cable channels like Sling TV, Playstation Vue and DirecTV Now. It’s easy to forget that just a year ago most of these services were just getting started.

It’s worth noting that AT&T overall saw only a minor drop in total cable subscribers. While AT&T and their DirecTV subsidiary lost 1.2 million customers, DirecTV now has just over 1.1 million customers. But this still has to be hurting the company since analysts all believe that the margins on the vMVPD services are much slimmer than traditional cable.

Of other note are the large percentage losses of cable customers at Dish, Frontier and Cable One.

Another way to consider these losses is on a daily basis, and the industry lost nearly 8,500 customers per calendar day during the year.

It’s obvious in looking at these number that the cable industry is now in the same kind of free fall we saw a decade ago with landline telephones. The phenomenon is widespread and 3 million cord cutters means this is every neighborhood in the country. I believe that the pace of cord cutting will continue to accelerate. It’s looked around my own neighborhood and I can’t find anybody who hasn’t either cut the cord or is thinking about doing so.

What surprises me the most is that the big cable companies are not in screaming to the Congress and the FCC to change the rules governing traditional cable. Those rules force the big channel line-ups, and the cord cutting shows that people can be happy with far less than what the programmers are selling. The cable company could be offering more of the skinny bundles offered by the vMVPDs and could retain more bundled customers.

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I recently talked to several clients who are expecting an increase in cable TV programming costs of between 8.5% and 9% for next year. They are able to forecast this because most of the contracts for programming cover at least three years of baked-in rate increases.

Every one of these clients is bleeding cable customers. We hear about how the big cable companies are experiencing impact from cord cutting. Last year the big companies altogether lost about 1.7 million customers, which is a little less than 2% of their customer base. But my small clients seem to be losing cable customers at a much faster pace. Cord cutting is obviously a real phenomenon and I’ve seen recent estimates that the big companies are expected to lose around 1.9 million customers this year. But while the big companies are losing customers at a steady pace, smaller cable operators are seeing a much bigger impact.

I think there are a number of reasons that small cable providers are suffering more.

Most of my small clients don’t pay the same billing games as the big cable companies. The big companies have created a number of ‘fees’ such as a local programming fee or a sports fee to disguise the real cost of cable. Many customers think these fees are taxes of some sort and they believe that the base price of cable shown on their bill is the actual price they are paying. That lower number is the one that they use when comparing to other alternatives.

The big companies are also far more aggressive with their bundling. They work hard to force customers into bundles and they penalize customers for leaving a bundle. Customers often don’t know what they pay for any specific product in a bundle and when they try to drop one product the full bundle savings are applied to that product. Even when small companies have bundles they don’t create a huge financial disincentive to leave the bundle.

Big companies are willing to give ‘special’ pricing to keep customers. They tend to give special pricing discounts aimed at new customers to anybody else who is willing to wade through the customer service minefield to ask for it. I think since smaller companies often don’t advertise ‘special’ prices they are far less likely to even be asked to reduce rates.

My smaller clients are generally more rural than the big companies, and as such they face far stiffer competition from the satellite companies. Both of the satellite providers now have a ‘skinny’ bundle that a lot of customers are finding attractive.

Why are the programmers raising rates so aggressively when it’s clear that the price of cable service is the number one driver of cord cutting? I have several ideas why they might be doing this:

These are all publicly traded companies and to some degree they don’t have a choice. Over 90% of cable channels are bleeding customers much faster than the rate of cord cutting. This shows that many customers are cord shaving and downgrading to smaller, less expensive packages. The programmers are compelled to increase profits, and with declining sales they can only compensate by raising programming rates. That sounds insane because it sounds like the beginning of a classic death spiral. But you must remember that any large publicly traded company that performs poorly is subject to being purchased by somebody else who will then force profits back up again. Our dreadful quarterly profit driven economy is forcing the programmers into a path that is not in anybody’s best interest.

They are all chasing hit shows. There are now a lot more companies like Netflix and Amazon creating unique programming, which adds to the pressure on the programmers. The financial rewards from producing even one hit show is gigantic, so they all keep spending money trying to find that next big hit, and raising rates to cover the cost of producing content.

Another theory is that the current rate increases are their last hurrah. They can see where the industry is headed. I saw an interview with the head of programming for FOX and he said that he expects that the company is going to have to ultimately collapse most of its many channels as they keep losing customers. And so perhaps these rate increases are the chance for making big profits for a few more years before the wheels come off. It seems that end is coming anyway, so maybe raising rates now is a way to milk every last penny out of a fading industry.

Programming content is certainly never going to go away. But companies like Netflix and Amazon are showing that there are reasonable alternatives to the huge TV bundles. I just wish I knew what to tell my clients. The most common question I seem to be getting these days is, “Should I even be in the cable business any longer?” I’m starting to think that the answer for many of these businesses is no – or it will be no within a few short years.

Like this:

Last year at least two million households cut the cord. I’ve seen headlines predicting that as many as 5 million more this year, although that seems too high to me. But both of these numbers are a lot lower than the number of people who say they are going to cut the cord in the coming year. For several years running various national surveys show that 15 million or more households say they want to cut the cord. But year after year they don’t and today’s blog looks at some of the reasons why.

I think one of the primary reasons people keep traditional cable is that they figure out that they won’t save as money with cord cutting as they had hoped. The majority of cord cutters say that saving money is their primary motivation for cutting the cord, and once they look hard at the actual savings they decide it’s not worth the change.

One issue that surprises a lot of potential cord cutters is the impact of losing their bundling discount if they are buying programming from a cable company. Big cable companies penalize customers who break the bundle. As an example, consider a customer who has a $50 broadband product and a $50 cable product, but for which the cable company charges $80. When a customer drops one of the two products the cable company will charge them $50 for the remaining one. That means there is a $20 penalty for cutting the cord and thus not much savings from cutting the cord.

Households also quickly realize that they need to subscribe to a number of OTT services if they want a wide array of programming choices. If you want to watch the most popular OTT shows that means a $10 subscription to Netflix, an $8.25 per month subscription to Amazon and a Hulu package that starts at $8. If you want to watch Game of Thrones you’ll spend $15 for HBO. And while these packages carry a lot of movies, if you really love movies you’ll find yourself buying them on an a la carte basis.

And OTT options are quickly proliferating. If you want to see the new Star Trek series that means another $5.99 per month for CBS All Access. If your household likes Disney programming that new service is rumored to cost at least another $5 per month.

And none of these options bring you all of the shows you might be used to watching on cable TV. One option to get many of these same networks is by subscribing to Sling TV or PlayStation Vue, with packages that start at $20 per month, but which can cost a lot more. If you don’t want to subscribe to these services, then buying whole season of one specific show can easily cost $100.

And then there is sports. PlayStation Vue looks to have the best basic sports package, but that means buying the service plus add-on packages. A serious sports fan is also going to consider buying Fubo. And fans of specific sports can buy subscriptions to Major League baseball, NBA basketball or NHL hockey.

Then there are the other 100 OTT options. There is a whole range of specialty programmers that carry programming like foreign films, horror movies, British comedies and a wide range of other programming. Most of these range from $3 to $7 per month.

There are also hardware costs to consider. Most people who watch a range of OTT programming get a media streaming device like Roku, Amazon Fire, or Apple TV. Customers that want to record shows shell out a few hundred dollars for an OTT VCR. A good antenna to get local programming costs between $30 and $100.

The other reason that I think people don’t cut the cord is that it’s not easy to navigate between the many OTT options. They all have different menus and log-ins and it can be a pain to navigate between platforms. And it’s not easy to find what you want to watch, particularly if you don’t have a specific show in mind. It’s hard to think that it’s going to get any easier to use the many OTT services since they are in competition with each other. It’s hard to ever see them agreeing on a common interface or easy navigation since each platform wants viewers to stay on their platform once logged in.

Finally, none of these combinations gets you everything that’s on cable TV today. For many people cutting the cord means giving up a favorite show or favorite network.

If anything, OTT watching is getting more complicated over time. And if a household isn’t careful they might spend more than their old cable subscription. I’m a cord cutter and I’m happy with the OTT services I buy. But I can see how this option is not for everybody.